The shadow chancellor, Alan Johnson, urges an 11th hour rethink of Tuesday's planned VAT rise in a letter to the government today, as the Confederation of British Industry (CBI) warned public spending cuts could lead to a dramatic slowdown in the pace of economic recovery.

Outgoing director general of the employer's body, Richard Lambert, predicts "bumpy times ahead" for businesses which are "extremely uncertain" about what the new year will bring.

"That's understandable because the economic and political outlook both seem volatile over the short term," said Lambert, who is knighted in the New Year honours list.

"For a start the pace of economic recovery could slow quite markedly in the first few months of 2011. The VAT increase will be taking effect, and the construction sector will start to feel the pain of public spending cuts," he said.

While the influential body is not predicting a double-dip recession and expects the rate of growth to pick up later in the year, Lambert expresses concern about the early months of 2011.

"You can easily imagine the screaming news headlines: about the threat of a double-dip recession; about strains on the coalition government; about protests in the streets," he said.

Johnson's letter to George Osbornecalls for a delay to the new tax which will rise from 17.5% to 20% on Tuesday. He writes: "The increase in VAT will hit people hard when they can least afford it. Motorists, who have seen significant increases in petrol prices recently, will suffer particularly badly by having to pay a further 11.6p per gallon .

The owner of an average size car who drives 20,000 miles a year will pay an extra £58. The Chartered Institute of Personnel and Development estimate that raising VAT to 20% will result in the loss of a further 250,000 private sector jobs ... That is why, even at this late stage, I ask you to think again about raising VAT."

However, in today's new year message, David Cameron's tone suggests the government will not back down. He acknowledges 2011 will be a "very difficult year" but embraces the government's agenda, saying 2011 will be the year "we stopped the rot" in which Britain becomes "one of the international success stories".

A fortnight ago, the CBI suggested that the economy could come to a virtual standstill in the early part of the new year, with quarterly growth rates in the next three months of as little as 0.2%, compared with 0.7% in the third quarter of 2010.

In the face of such analysis and opposition claims that the government is ideological rather than pragmatic, Cameron said: "I didn't come into politics to make cuts. Neither did Nick Clegg. But in the end politics is about national interest, not personal political agendas. We're tackling the deficit because we have to – not out of some ideological zeal. This is a government led by people with a practical desire to sort out this country's problems, not by ideology."

Lambert offers some succour for the coalition. The CBI's new year message suggests that 2011 could be a "year of opportunity". Export orders are rising and the CBI's surveys of investment intentions in the manufacturing and services sectors are picking up sharply. Company balance sheets are "in good shape".

"After three years in which the emphasis has been heavily concentrated on cost cutting, business people are once more beginning to think about growth," he said.

The British Chambers of Commerce (BCC) calls on the government to ensure that all its policy decisions are pro-business in 2011 to ensure that private sector companies fuel economic growth.

"UK businesses have witnessed some of the toughest years in recent memory. But we can no longer afford to talk down our economic prospects," said David Frost, director general of the BCC.

"Next year we will feel the full impact of the public sector cuts, coupled with the VAT increase. Only growth in the private sector will ensure that the UK's prospects recover," he said.

The trade organisation wants the government to make it easier for companies to hire staff and find ways to restore enough confidence for businesses to seek out new finance that will allow them to grow. The government should also make 2011 "the year for exports" as well as simplifying planning rules, the BCC said.

Meanwhile, personal insolvency firm RSM Tenon predict that annual personal insolvencies over 2010 are likely to exceed the record level set last year of 134,132, blaming VAT rises and public sector cuts.

Mark Sands, the company's head of bankruptcy and personal insolvency, said: "The economic downturn has left people in a bad financial state and we expect this to continue through 2011 and into 2012. There really is no let up at the moment and many people will be struggling to see the light at the end of the tunnel when the upturn does arrive."